AAII Sentiment Survey: Optimism Jumps to an 11-Month High

Optimism among individual investors about the short-term direction of stock prices rose to its second-highest level of the year in the latest AAII Sentiment Survey. The rise occurred as both neutral and bearish sentiment fell.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.4 percentage points to 45.1%. Optimism was last higher on January 4, 2017 (46.2%). The increase puts optimism above its historical average of 38.5% for the fifth time in eight weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.0 percentage points to 26.4%. The pullback puts neutral sentiment at its lowest level since March 8, 2017 (23.5%). The historical average is 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.5 percentage points to 28.6%. Pessimism has now been below its long-term historical average of 30.5% for six out of the past eight weeks.

At their current levels, all three sentiment indicators are well within their typical historical ranges. We are continuing to see an overall improvement in optimism, however. Five of this year’s eight above-average readings for bullish sentiment have occurred after Labor Day.

Political drama in Washington remains at the forefront of many individual investors’ minds. (Many have previously expressed skepticism about the prospects of tax reform actually being passed.) Opinions about stocks are mixed, with many individual investors viewing stocks as being a bit or too overpriced. Other individual investors are encouraged by the growth in earnings and the market’s upward momentum. In the background are concerns about the lack of volatility and the possibility of a forthcoming correction.